The following information applies to the questions displayed below The PC Works

Question

The following information applies to the questions displayed below The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retal sales store are housed in a single facility in a Redmond, Washington, industrial park Listed below are some of the costs that are incurred at the company 2. 200 points value Indicate the appropriate classification(s) for the cost listed below (Select all that apply ) 1 The cost of a hard drive installed in a computer. Direct materials cost Selling cost Administrative cost Manufacturing overhead cost Direct labor cost References

Explanation / Answer

1) Direct material are those materials that are consumed for manufacturing the product and can be easily identified with the unit of production. Therefore the cost of a hard drive installed in a computer is a direct material cost because the cost of the hardrive can be easily identified with the unit of production (i.e. computer).

2) The cost of advertising in the newspaper is a type of selling cost as it is incurred to increase the sale of the product.

3) The employees assembling computers from components will be considered as direct labor and wages paid to them will be classified as direct labor cost.

4) Sales commission paid to sales people is also incurred with the purpose of selling the product, therefore it will also be classified as selling cost.

5) The wages of the assembly shop supervisor will be classified as manufacturing overhead cost (or factory overhead) because it is directly related to the manufacturing activity (i.e. assembling here).

6) The wages of the company's accountant will be classified as administrative cost. As it is not directly related to manufacturing activity it can to be classified as manufacturing overhead cost.

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